Tuesday, February 26, 2008

While America’s attention, and too many dollars are directed at the Middle East, a looming giant in the Far East is evolving into a potentially more formidable antagonist on the world stage. The average American should be more preoccupied with current and future events in China than with any present or future embrace of democracy in Iraq, or anywhere else in the Middle East for that matter.

North America’s lifestyle has become dependent, even addicted to cheap imported goods from Asia. Practically every product we purchase at our local mall is manufactured in China, with only a few manufactured by its neighbors. The telephone call you make for service on those products goes to a bank of service reps in the Philippines who can instantly call up your private information. Manufacturers are providing us goods we might otherwise have to do without, or wait longer before acquiring. How much more would we pay for those goods? No one knows. That depends on too many variables, including existence of monopolies, company market presence, competition etc. Meanwhile, WalMart has become the standard bearer for free trade.

In the almost 166 years since the Treaty of Nanking when trade was opened up across the wider Chinese landscape, the West’s relationship with China has rested delicately on uncomfortable trade and not much else in acquiescence to the political and cultural divide. In the nineteenth century Britain positively counter-balanced its purchase of silk, tea, gold, silver and porcelain from China by becoming its principal opium supplier. The Treaty of Nanking obligated China to accept more opium grown on plantations Britain controlled in India. Some accounts of this period suggest that up to one quarter of the Chinese population became addicted. In the context of such history including the contemptible Opium Wars, it is not surprising that even after much time passed, attempts to admonish China for human rights violations are falling on deaf ears. Meanwhile, over a century later, the tide of goods leaving China for U.S. ports in 2007 was $321 billion. Only $65 billion worth floated in the other direction. Strangely, that inequality in movement is in and of itself, not an insurmountable problem, yet its optics cause unease on this continent.

Forecasts suggesting China will emerge as the world’s largest economy within one generation are likely accurate given China's propensity to remain pragmatic and maintain the status quo. It will do deals with anyone and any country that will serve its needs. It makes deals with oppressive dictators in Africa for natural resources and doesn’t meddle with local politics. It evidently does not see itself as an international policeman.

Congress is unlikely to take dramatic action other than uphold the concept of “free trade” although there is really no possibility of mutually beneficial free trade if there is not broad based balance between the partners. Trade sanctions would do little to repatriate jobs. Multi million dollar bonuses are too much incentive for heads of corporations to ignore . . . product manufacturing and the provision of services will continue to move off-shore. China has shown that it will move at its chosen speed in all affairs, including the devaluation of the yuan. It’s almost as if the corridors of power in Beijing are resonating with whispers saying “Global instability? What instability? We’re good. So what if we have mountains of foreign exchange? Did you manipulate the currency? … Nope. Did you?”

We all witnessed Matel apologize to China for shipping defective toys. Corporate America apologizing? By any other term, this is Fear. Fear that they won’t manufacture your toys for you if you don’t pull a mea culpa. Matel suggested that they hadn’t been careful enough with their quality control. That’s called confusion. Confusion because is shows lack of confidence. Such confusion was also present when Yahoo turned over names of dissidents to the Chinese government. Confusion and fear… that’s when stupidity sets in, and it did.

Tightening the belt on this side of the Pacific and internationally promoting the rule of law might have some influence on America’s long term peace of mind. That should include promoting full disclosure and transparency for Chinese companies that American firms take public. Can we expect that to happen? Not really. Wall Street has set up camp in China to raise capital for Chinese firms. Will they turn a blind eye to the lack of internationally accepted reporting procedures we have come to expect here? Will Wall Street firms defy common sense to make hundreds of millions in fees anyway? Will they attempt to rectify concerns pertaining to such trade apprehensions as subsidies, piracy and protected intellectual property violations? Past behavior suggests not. Anything goes, under the rationalization “We want to be in position to tap this burgeoning market. If we don’t, somebody else will. Why should we take a position on such elements, we’re not in the politics business.” Those are rationalizations, of course, for not doing the right thing.

It is left to the U.S. government to exert pressure. Unfortunately, threatening protectionism is no leverage at all when you’re admonishing a country holding over one and two third trillion dollars in U.S. government securities. Holding so much of America’s debt impels some moderation on China's part and we can be grateful that it requires economic stability as much as we do. At least for now. Let’s not create an even bigger power than the one we now face. Balance of power nurtures constraint and moderation.

America, cut back … way back, and save. Lousy time to be suggesting this, but is there a choice? It's time for America's middle class to become selfish.